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Extras on Excise: Is the Colorado Marijuana Tax Lawsuit a Party Foul?

It’s now legal to smoke pot in Colorado. Who would be the
least likely people to make a legal challenge to this state of affairs? Marijuana
advocates, you say? You’re right! A group of prominent marijuana users is protesting
the taxes being imposed on their beloved weed. By doing so, they seem willing
to throw the baby (i.e., legal sales
of recreational marijuana) out with the bath water (i.e., taxes).

On June 9, four named plaintiffs and potential class
participants filed a lawsuit challenging the constitutionality of Colorado
marijuana taxes. The plaintiffs filed the lawsuit through Robert Corry, an
attorney who played a role in Colorado’s passing of the Amendment 64 ballot
initiative to legalize recreational marijuana in Colorado.

The complaint is an entertaining read that starts its
“Factual background and general allegations” section by discussing God making
marijuana available to all of mankind in the book of Genesis. Reading the
complaint also teaches about how our forefathers grew pot regularly in their
farms and plantations, and that the Declaration of Independence was written on
hemp paper. That’s right, the fabric of our modern democracy was literally
woven with the hemp from marijuana plants of the 18th century.

The lawsuit has two main arguments:

Marijuana is taxed at a much higher rate than
alcohol, against the policy of Colorado’s Amendment 64, which calls for
marijuana to be taxed in a manner similar to alcohol.

Regulations for marijuana tax returns identify
retailers of marijuana and require retailers to incriminate themselves in
violation of the 5th amendment protections against
self-incrimination.

Though the lawsuit seeks an injunction on behalf of all
marijuana cultivators and retailers in Colorado, much of Amendment 64’s
advocates want nothing to do with it. If successful, the lawsuit may not only
stop the marijuana tax revenues from pouring in, but it may also threaten the
recreational marijuana regulatory framework that the marijuana taxes are built
upon. Is this lawsuit potentially blowing Colorado’s high?

“It’s more of a publicity stunt,” said Brian Vicente,
marijuana legalization advocate and co-director of the Colorado Amendment 64
campaign.

Vicente knows Corry--they briefly worked together during the
Amendment 64 campaign. However, Vicente and Corry are apparently on opposite
sides of this issue. While Corry filed the lawsuit, Vicente finds it to be “reckless and not very well thought out,” and is
“fostering anti-tax sentiments.” Bloomberg BNA was unable to contact Corry for
comment.

The bios in the first four pages of the lawsuit indicate that
the named plaintiffs were carefully selected to convey legitimacy and merit to
the complaint. First mentioned is Larisa Bolivar, former operator of “the first
Marijuana Dispensary in Colorado history” and current marijuana studies
master’s degree student at Regis University. Second is Miguel Lopez, leader of
the annual 420 Rally in Denver on each marijuana “holiday,” April 20. Third is
William Chengelis, chairman of the U.S. Marijuana Party and “Vietman-era U.S.
Army veteran who suffers from Post Traumatic Stress Disorder (PTSD).” Finally, Kathleen Chippi, founder of the
Patient and Caregiver Rights Litigation Project. The lawsuit describes the
named plaintiffs as marijuana consumers who pay “increased taxes for purchases
of marijuana…”

Each plaintiff has a title that shows leadership in the
recreational marijuana movement, and this contributes to the public portrayal
that the leadership of recreational marijuana does not want to pay any
marijuana taxes.

Regardless of the case’s merits, Corry at least has an
impressive cast of plaintiffs that are bringing this suit. One of those
plaintiffs, William Chengelis, has PTSD, and this highlights one of Colorado’s
controversial issues with medical marijuana. Colorado does not include PTSD in
its list of qualifying medical conditions for medical marijuana, so absent any
other qualifying conditions, people like Chengelis must resort to the taxed
recreational variety of marijuana.

Vicente is not sold on the merits and believes the lawsuit
has little chance of surviving because “the government has a long history of
taxing products that are both legal and illegal, just look at Al Capone.”
Indeed, many states already impose taxes and fees on marijuana and other
illegal controlled substances.

Ironically, Al Capone was caught evading taxes relating to a
different prohibition: alcohol. The Al Capone argument may work for either side
of this issue.

Continue the discussion on Bloomberg BNA's State Tax Group
on LinkedIn: Is the Marijuana Tax Lawsuit a Party Foul?

For more information about state tax issues,
sign up for a free trial of the Bloomberg BNA Premier State Tax Library.

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